site.btaEC Opens In-Depth Investigation into Arbitration Award Ordering Bulgaria to Pay Compensation to Maltese Renewable Energy Company

The European Commission has opened an in-depth investigation to assess whether an arbitration award, in which Bulgaria is ordered to pay compensation to ACF Renewable Energy Limited for changes to a renewable electricity support measure, is in line with EU State aid rules, the Commission said on Wednesday.

In 2011, Bulgaria established a scheme to support the production of electricity from renewable sources. In 2013, 2014 and 2015, Bulgaria changed the scheme. In March 2016, the scheme in place was notified to the Commission, which approved it under EU State aid rules on August 4, 2016, the press release said.

ACF is a company established in Malta. In 2012, ACF invested in Bulgaria's renewable energy sector by purchasing a solar photovoltaic power plant, that benefitted from the renewable energy support scheme that Bulgaria implemented in 2011. Following the modifications introduced by Bulgaria in 2013 and 2014, ACF continued to receive support under the modified scheme and initiated arbitration proceedings. The company claimed compensation for the support it would have received on the basis of the scheme, had it not been modified.

An arbitral award of January 5, 2024, found that Bulgaria infringed the Energy Charter Treaty (‘ECT') and ordered Bulgaria to compensate ACF for losses allegedly suffered due to the modifications of the Bulgarian support scheme. The compensation amounts to €61.04 million, plus interest. Bulgaria notified this award to the Commission under State aid rules, but until today has not paid any compensation.

At this stage, the Commission's preliminary view is that the arbitration award and its implementation would constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the EU (‘TFEU'), which is incompatible with the internal market. The Commission will investigate further the measure and its compatibility with the internal market, and in particular a possible breach of the EU Treaties by the aid measure, the press release said.

It noted that State aid is prohibited unless it is approved by the Commission as compatible with the functioning of the internal market. A measure that breaches other provisions of EU law cannot be declared compatible under State aid rules.

The dispute leading to the arbitration award was an intra-EU dispute. Therefore, the Commission will assess further whether the award and its implementation could be in breach of Article 19(1) of the Treaty on European Union, Articles 267 and 344 TFEU, regarding the ultimate jurisdiction of the Court of Justice of the European Union (‘CJEU'), and the general principles of autonomy of the EU legal order.

The opening of an in-depth investigation gives Bulgaria and interested third parties the opportunity to submit comments. It does not prejudice in any way the outcome of the investigation, the Commission said.

Case-law from the CJEU sets out that Intra-EU investor-State arbitration based on Bilateral Investment Treaties are contrary to EU law.The Commission's July 2018 Communication on the protection of investments explains that this also applies to the investor-State arbitration clause in the ECT, the press release said.